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Target U.S. Large-Caps With These Active ETFs

Active large-cap domestic equity managers have been proving their worth thus far this year, with nearly half (49%) of such funds outperforming the S&P 500 in the first six months of 2022. Meanwhile, the S&P 500 fell 20% on a total return basis during the same period, according to S&P Dow Jones Indices.

“Declining markets make active management skills all the more valuable, and our report shows that a significant minority of active managers were able to outperform in several categories,” according to S&PDJI.

Both large-cap U.S. equity dispersion and volatility have been trending higher since 2017, with dispersion currently on pace to have its highest average annual reading since 2009, “which is perhaps not coincidentally the last time we saw this level of outperformance for large-cap domestic equity funds,” S&PDJI wrote. “Higher dispersion implies a greater possibility of generating above-average performance through judicious stock selection.”

Investors looking to use active management to target large-cap stocks may want to consider the American Century Focused Dynamic Growth ETF (FDG) and the American Century Focused Large Cap Value ETF (FLV). Launched on March 31, 2020, the exchange traded funds were part of the first wave of active, non-transparent ETFs to reach the market.

FDG is a high-conviction strategy that invests in early-stage, rapid-growth companies with a competitive advantage and high profitability, growth, and scalability. The growth-style ETF, which aims to beat the Russell 1000 Growth Index, targets 30–45 large- and mid-cap U.S. companies.

Meanwhile, FLV tries to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. The fund’s holdings and value stocks usually trade at lower prices relative to fundamental value measures, like earnings and the book value of assets. FLV, which aims to beat the Russell 1000 Value Index, mixes cyclical sectors (like financials) with defensive (including communication services, consumer staples, healthcare, real estate, and utilities).

When initially launched, Ed Rosenberg, head of ETFs for American Century, said in a news release announcing the ETFs that the “new type of [active, non-transparent] ETF gives American Century one of the most diverse platforms in the industry and allows us to introduce products with our unique insights.”

FDG has an expense ratio of 0.45%. FLV’s expense ratio is 0.42%.

For more news, information, and strategy, visit the Core Strategies Channel.

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